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Facts
The assessee, a partnership firm, filed its return of income for AY 2017-18 declaring Nil income. The assessment was completed under Section 143(3) and later set aside under Section 263. A revised order was passed, again at Nil income. The Principal CIT initiated fresh Section 263 proceedings, citing the purchase of an immovable property where the stamp duty value exceeded the purchase price.
Held
The Tribunal held that Section 56(2)(vii)(b)(ii) of the Act is applicable only to Individuals and HUFs, not to partnership firms. Furthermore, Section 56(2)(x), which was introduced later, was not applicable to the impugned assessment year. Therefore, the initiation of Section 263 proceedings was not fit.
Key Issues
Whether Section 56(2)(vii)(b)(ii) or Section 56(2)(x) are applicable to a partnership firm for AY 2017-18 when the property was purchased for a consideration less than its stamp duty value, and if the Section 263 proceedings were rightly initiated.
Sections Cited
143(3), 144B, 263, 56(2)(vii)(b)(ii), 56(2)(x), 55A, 50C, 155, 4
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
(Assessment Year: 2017-18) Kalptaru Infrabuild, Vs. Principal Commissioner of 1, Kadam Bungalows, Income Tax-3, Opp. Sukruti Bungalows, Ahmedabad 100 ft. Shilaj Road, Thaltej, Ahmedabad-380059 [PAN No.AAQFK9294A] (Appellant) .. (Respondent) Appellant by : Shri Chetan Agarwal, A.R. Respondent by: Shri Alpesh Parmar, CIT DR 26.06.2025 Date of Hearing Date of Pronouncement 16.07.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Ahmedabad-3 vide order dated 30.03.2025 passed for A.Y. 2017-18.
The assessee has raised the following grounds of appeal:
1. The ld. PCIT erred in law as well on fact in assuming jurisdiction u/s.263 of the Act and in holding assessment order has erroneous and prejudicial to the interest of revenue.
3. The brief facts of the case are that the assessee, a partnership firm, filed its original return of income for the Assessment Year (AY) 2017-18 on 25.07.2017, declaring a total income of Rs. Nil. The assessment was completed under Section 143(3) of the Act on 17.10.2019, accepting the Kalptaru Infrabuild vs. PCIT Asst.Year –2017-18 - 2– returned income at Nil. However, this assessment order was later set aside under Section 263 of the Act. Consequently, a revised order under Section 143(3) r.w.s 263 and 144B was passed on 21.03.2023, again assessing the income at Nil without making any variation. Principal CIT again initiated 263 proceedings on the ground that the records revealed that the assessee had purchased an immovable property (at Ambika Society, Ahmedabad) for a sum of Rs.85,00,000/-, while the stamp duty paid was Rs.6,18,000/-. Based on Gujarat’s prevailing ad valorem stamp duty rate of 4.9%, the stamp duty valuation of the property worked out to Rs.1,26,12,245/-. According to Section 56(2)(vii)(b)(ii) of the Act, where a property is purchased for less than its stamp duty value, the difference is taxable as “Income from Other Sources”. Principal CIT noted that in the original assessment, the AO had failed to make any such addition. During the consequential assessment proceedings (in consequence to the first 263 order), the AO referred the matter to the Departmental Valuation Officer (DVO) for determining the value of the property. However, since no response was received from the DVO and the assessment was nearing the time-barring date of 31.03.2023, the AO finalized the assessment without making any adjustment. In view of these facts, Principal CIT again initiated 263 proceedings and a show-cause notice dated 17.03.2025 was issued to the assessee, proposing revision under Section 263 on the ground that the order dated 21.03.2023 was erroneous and prejudicial to the interest of Revenue. In response, the assessee submitted that the AO had examined the relevant documents including the sale deed and the stamp duty valuation, had considered submissions made on 14.03.2023, and referred the matter to the DVO under Section 55A. The assessee submitted that Section 56(2)(vii)(b)(ii) was not applicable as it applied only to Kalptaru Infrabuild vs. PCIT Asst.Year –2017-18 - 3– individuals and HUFs, and not to partnership firms, and cited relevant case law in support. Even if the provision was deemed applicable, the AO had complied with his legal duty by referring the matter to the DVO, and the absence of a DVO report before the limitation date did not render the order erroneous. However, Principal CIT dismissed the arguments of the assessee and held that section 56(2)(vii)(b)(ii) was attracted as the purchase price was below the stamp duty valuation. It was held that the AO had been directed by the earlier 263 order to specifically address this issue, but had failed to take the appropriate action by not waiting for the DVO report and simply accepting the returned income. In these facts, PCIT held that the AO should have provisionally adopted the stamp duty valuation pending the DVO report instead of completing the assessment without any variation. In light of this, PCIT held that the assessment order dated 21.03.2023 was erroneous and prejudicial to the interest of the Revenue.
Before us, the Ld. counsel for the assessee reiterated the arguments taken before Principal CIT in the 263 proceedings. In response, Ld. DR placed reliance on the observations made by Principal CIT in the 263 order.
We have heard the rival contentions and perused the material on record. We note that the relevant taxing provisions to tax such receipt in the hands of the assessee (being a partnership firm) viz. Section 56(2)(x) of the Act was inserted by Finance Act, 2017, with effect from 01.04.2017 (AY 2018-19), and the said provision was not applicable to the impugned year under consideration. The Mumbai ITAT in the case of Deputy Commissioner of Income-Tax vs. Romell Housing LLP [2024] 168 taxmann.com 536 (Mumbai - Trib.), while dealing with a similar issue Kalptaru Infrabuild vs. PCIT Asst.Year –2017-18 - 4– held that where deed of conveyance was executed on 31.03.2017, provisions of Section 56(2)(x), which were inserted by Finance Act, 2017, with effect from 01.04.2017, were not applicable to the assessee and accordingly the difference between stamp value and purchase consideration could not be taxed as income of the assessee under Section 56(2)(x) of the Act. While passing the order, the ITAT made the following observations:
“In the present case, the assessee is a limited liability partnership firm and its members are (i) Romell Real Estate Pvt. Ltd. which owns 99% of the capital of the assessee, and (ii) Romell Infrastructure Pvt. Ltd., which is 100% owned by Romell Real Estate Pvt. Ltd. and owns 1% capital of the assessee. Romell Real Estate Pvt. Ltd. had decided to acquire properties from Pooja Land & Premises Ltd. and other parties like Valentine Properties Pvt. Ltd. In this regard, payments were made by Romell Real Estate Pvt. Ltd. to the sellers for these properties in the year 2010. Subsequently, Romell Real Estate Pvt. Ltd. through one of its 100% subsidiaries, i.e. the assessee, acquired the properties from Pooja Land &Premises Pvt. Ltd. and Valentine Properties Pvt. Ltd. and it was agreed that the sum already paid by Romell Real Estate Pvt. Ltd. shall be considered as advance payment of full and final consideration payable to the vendor for the sale of the said property in favour of the assessee. It is evident from the deed of conveyance forming part of the paper book from pages 480- 508 that the said deed was executed on 31.03.2017. We further find that the said deed of conveyance was registered on 13.04.2017. Before the execution, the documents were also submitted for adjudication before the Stamp Duty Authority and the stamp duty determined to be payable was paid by the assessee on 24.03.2017. Thus, it is the plea of the assessee that at the time of execution of the deed of conveyance on 31.03.2017, an adjudication order by the Stamp Duty Authority had come and the additional stamp duty was also paid and possession was also taken symbolically. Therefore, as per the assessee,section 56(2)(x) of the Act which was inserted by the Finance Act, 2017 w.e.f. 01.04.2017 is not applicable to the present case. On the contrary, as per the Revenue since the deed of conveyance was registered during the year under consideration, i.e., after 01.04.2017 therefore, section 56(2)(x) of the Act was rightly being invoked by the AO in the facts of the present case.
Before proceeding further,it is relevant to analyse the provisions of section 56(2)(x)(b) of the Act which are relevant for the adjudication of the issue at hand. Section 56(2)(x)(b) of the Act reads as follows: - "(b) any immovable property,- (A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:- (i) the amount of fifty thousand rupees; and (ii) the amount equal to five per cent of the consideration: Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause : Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of agreement for transfer of such immovable property: Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub- clause as they apply for valuation of capital asset under those sections;"
Therefore, as per the provisions of section 56(2)(x)(b) of the Act, where any person receives any immovable property from any person or persons on or after 01.04.2017 either without consideration or for consideration, the stamp duty value of such property exceeding such consideration shall be considered as its income from other sources, if the amount of such excess is more than the amount mentioned in the section. In the present case, the assessee has challenged the very applicability of the provisions of section 56(2)(x) of the Act on the basis that the property was received prior to 01.04.2017. In this regard, much emphasis has been placed on the fact that the deed of conveyance and other formalities such as payment of stamp duty and handingover of the symbolic possession were completed on 31.03.2017. As per the assessee, the Registration Act, 1908 requires lodging the document for registration within four months from the date of execution. Accordingly, as per the assessee, the registration of the deed of conveyance was done in the month of April 2017, i.e., within the time permitted for registration. In order to decide this dispute, at this stage it is also relevant to determine the date from which the deed of conveyance is operative. The answer to the aforesaid query is relevant as if it is decided that the same is operative from the date of execution, i.e., 31.03.2017 then the present case clearly falls outside the purview of provisions of section 56(2)(x) of the Act. However, if the deed of conveyance is found to be operative from the date of registration, i.e., April, 2017 then the present case clearly falls within the ambit of section 56(2)(x) of the Act for determination of income of the assessee.”
Kalptaru Infrabuild vs. PCIT Asst.Year –2017-18 - 6– 6. So far as taxability of a partnership firm under Section 56(2)(vii)(b)(ii) of the Act is concerned, we observe that this provision is applicable specifically only to Individuals and HUF receiving immovable property for inadequate consideration. A partnership firm being a distinct entity under Section 4 of the Partnership Act, 1932 and assessed as a “firm” under the Income Tax Act falls outside the ambit of Section 56(2)(vii)(b)(ii) of the Act. This has been so upheld in the case of Shri Mohit Gupta vs. PCIT in vide order dated 27.02.2025.
Accordingly, in light of the facts of the assessee’s case, since the case of the assessee did not fall under any of the specific charging provisions of Section 56 of the Act, for the impugned year under consideration, we are of the considered view that this is not a fit case for initiating 263 proceedings, considering the assessee’s set of facts.
In the result, the appeal of the assessee is allowed.
8. This Order pronounced in Open Court on 16/07/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 16/07/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,